Posts Tagged ‘Transparency’

This is an interesting piece that I thought I should share its been written by Omar Mohammed on his blog the WAYWARD PRESS

I renamed it “Market economy that cares for the poor is possible” as it echoes some of my thoughts on the mining industry.

ZZK

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NEWS ANALYSIS: The President, Mining and The Rise of Populism

In late February, President Jakaya Kikwete of Tanzania gave a speech to mining sector stakeholders that caused a mighty uproar in the press. Speaking at Dar es Salaam’s Kilimanjaro Hyatt Hotel to launch the Presidential Award on the Extractive Industry Corporate Social Responsibility and Empowerment (CSRE) programme, the president was quoted as saying, ‘it’s disappointing to see some mining investors want to benefit alone… leaving the government and surrounding communities with nothing,’ he said.

According to published reports, President Kikwete told industry attendees that the lack of apparent benefits to local communities is a problem that ‘triggers endless conflicts…between investors and residents living around the mining areas.’

‘If companies pay taxes that are due to the state… they will have good relations with the government,’ he added. In a tone that was described by onenewspaper as ‘serious,’ he called for the creation of better linkages between the industry and other economic activities in the country. He said he was baffled by reports that mining companies choose to import goods from abroad that can be easily found in the country. “People… ask, “what do we get in return? Our gold is taken, companies have tax holidays and exemptions, [yet] they don’t even buy our goods or support us economically,”’ he said.

The speech and its perceived critical tone, especially, was unexpected. Reading the coverage, one would have been forgiven for mistaking the president’s comments for the kind of rhetoric usually associated with activists campaigning against perceived misdeeds by the mining sector. Mr. Kikwete was not only co-opting their message but in many ways he sounded like he was channelling their anger.

Meanwhile, the way the story unfolded in the media showed how narratives about the sector evolve and enter our public discourse. It began with the president giving what the media interpreted as a critical speech about the industry, which was then echoed by an incendiary press who amplified it to their readers who will, with complaints to public officials, in turn reinforce the anti-mining sector arguments. The storyline seemed to subscribe to the now familiar trope of “foreign investors unbridled in their plundering of our resources while local communities benefit little from what is rightfully theirs.” That’s the narrative that dominated Tanzania’s newspapers and airwaves.

However, in the media coverage that followed, conspicuous in their absence were voices from the mining sector explaining or offering an alternative perspective. But a couple of weeks after the President’s speech, the industry body, the Tanzania Chamber of Minerals and Energy, granted me an e-mail interview, presenting a different narrative to the one carried in the press earlier in the month.

Mining and its contributions to the economy

The chamber strongly disputed what they termed as an ‘outdated characterisation’ of the industry, arguing that mining is ‘driving socio-economic development both in Tanzania and across the African continent.’ While they disagreed with the media’s spin, saying that reading the speech in its entirety would show how supportive of the sector President Kikwete is, they were also quick to emphasize what they believe are significant contributions mining brings to Tanzania’s economy.

On the issue of taxes, for instance, TCME points out that their members paid over US$150 million (Tsh 250 billion) in taxes in 2010 alone. Furthermore, they argue, ‘total taxation from the life cycle of the five main producing companies in Tanzania are estimated to reach almost US$3.5 billion in total.’

As to the question of whether there exists linkages between the sector and the country’s overall economy, TCME calls attention to the activities of one of its biggest member, African Barrick Gold (ABG). The chamber says ABG currently employs 9,200 people whose wages amount to US$148 million, a chunk of which, they argue, drives spending in the local economy.

In 2009, for example, the chamber argues, ‘through employment, taxes, royalties, and local procurement, roughly 70% of African Barrick Gold’s revenue was retained in the Tanzanian economy.’ They also point to ABG’s community development spending, which, they say, through its ‘Maendeleo Fund’ ‘provides US$10 million annually…to support communities [surrounding] the mining areas.’ In addition to this, TCME claims that ABG, ‘spent more than a half a billion dollars purchasing goods and services in 2010 of which 59% were made in Tanzania.’ All this, they say, demonstrates just how ingrained in the economy modern mining firms are.

If these figures are indeed true, why is it then that the mining sector is a target of so much suspicion and vitriol?

‘Mining firms need to do better’

Some industry observers complain that the absence of easily available information about the sector has created a perception, justifiable or not, that mining companies are too secretive, which then feeds the idea that they have something to hide.

‘Secrecy surrounding financials and taxes in the mining sector exacerbate the views expressed by the President,’ says Zitto Kabwe MP (Chadema – Kigoma North), the Deputy Leader of the Opposition in Parliament and the Shadow Minister of Finance.

His colleague, January Makamba MP (CCM – Bumbuli), the Chairman of the Parliamentary Committee on Energy on Minerals, shares this view and says that at the moment, ‘the asymmetry of information favour[s] these companies.’ Both parliamentarians agree that when it comes down to it, Tanzanians simply want to see their country get a fair share from their natural resources.

‘These figures are indeed impressive,’ says Mr. Makamba, commenting on the TCME numbers, before adding, ‘but only if we do not consider what could be possible.’ For example, he points out that in 2010, the mining sector contributed 2.8 percent to Tanzania’s GDP and employed about 14,000 people. However, Mohammed Enterprises, a local family owned company that deals with manufacturing and distribution of goods and services, among other things, and a relatively small business compared to the majority of mining companies operating in the country, reportedly contributes 3 percent to GDP and employs about 24,000 people. Therefore, in Mr. Makamba’s view, ‘the extractive industries [need to be] a little bit more integrated into the broader economy.’

When looking at the sector’s tax contribution, Mr. Kabwe argues that this too could be improved. ‘Taking the proportion of the taxes companies are paying to total export of minerals, you will realize that the government receives peanut[s], around 13% only,’ he says. Furthermore, Mr. Kabwe argues that most of the taxes mining companies pay do not originate from the companies but come out of employees’ pay cheques. ‘It is true that mining companies pay various taxes. However, most of these…are originating not from companies, but, for example, [from] employees’ [Pay As You Earn] taxes and companies are simply collecting agents,’ he says.

Semkae Kilonzo, a policy co-coordinator for Policy Forum, an umbrella civil society organisation with a networked membership of over 100 NGOs in Tanzania, says that doubts about mining companies’ contribution to the economy stem from a perceived lack of transparency. On the TCME figures, Mr. Kilonzo argues that, ‘these are aggregated figures, and by their very nature, [are] open to contestation as they are not easily verifiable,’ adding, ‘it is difficult to tell whether a country is getting a fair deal or not.’

Just like Mr. Kabwe, Mr. Kilonzo insists that the way to remove doubts about the sector is to make all payments and contracts public. ‘Secrecy creates public discontent and mistrust of mining companies of which populist leaders are compelled to react to.’ Consequently, without an open and honest dialogue, ‘that discontent is bound to continue,’ argues Mr. Kilonzo.

Politics versus Economics

But the chamber says it wants to hear from those critical of the sector and is interested in listening to what they have to say. ‘We want to be able to engage in a dialogue that will help us to better understand the concerns and needs of our stakeholders,’ they say.

At the moment, though, that conversation is struggling to take place. It seems like the politics of mining, and the extractive industries in general, are drowning out any sensible and dispassionate look at the economics of the industry.

One political analyst, who spoke on condition of anonymity so he could comment candidly on the issue, says one should not ignore the recent flurry over oil and gas explorations in the country in looking at the broader debate over the extractive industries. ‘The anti-mining sentiment is in anticipation of the negotiations and contracts that will be issued once the liquid natural gas exploitation begins,’ he says, before adding, ‘people don’t want to get screwed over again, like they believe they were with the mining sector.’

So, it appears that, once again an economic debate finds itself taking a backseat to political tactics. ‘Perhaps the President is hedging, anticipating a long but losing battle with the various parties that will be involved regarding oil and gas,’ says the analyst.

For his part, Mr. Makamba suggests that while politicians are justified in responding to the general public’s sentiments that Tanzania should get more from these investments, they need to be careful they don’t veer too far into populism, which in the end could stifle ways in which the government and the sector can work together for mutual benefit. ‘I think that the characterisation that mining investors “want to benefit alone” may be a bit harsh,’ he says.

Mr. Makamba urges people to put things in perspective. ‘It is common to hear people and politicians complain that we have abundant natural resources but we are still poor, that we have “sold” our country away, and so forth. But the fact is that we have explored only about 15 percent of our potential mineral resources. You can’t have minerals under the surface and claim to be rich.’

At the same time, it is unclear whether mining companies appreciate the political dynamics at play in the country. Tanzania, after all, is a former socialist country and that spirit and its accompanying suspicion of private enterprise still retains a powerful hold on the country’s politics.

TCME are at pains to explain how the industry and the government need to work together to make sure the benefits of mining are clearly understood by all. But observers, argue that the sector needs to be more proactive and open in articulating what its contributions to the economy are.

‘As a social democrat I share some of the views expressed by “wananchi” but leaders must inform people that [a] market economy that cares for the poor is possible,’ Zitto Kabwe says. He argues that transparency in payment of royalties and taxes would go a long way towards ameliorating the negative perceptions the public holds over the industry. ‘Once people see real benefits of [the] mining sector, they will definitely change their minds.’

(Photo: President Jakaya Kikwete speaking at the launch of the Presidential Award on the Extractive Industry Corporate Social Responsibility and Empowerment (CSRE) on 29th February 2012. via Habari)

Tanzania: Yes, to block grants – if…

Zitto Kabwe, one of the leading opposition politicians in Tanzania says yes to a development support with less demands from Denmark. But on the condition that parlamentarians and independent, local organizations (NGOs) get a share of the money.

With 727 millions DKK in assistance from Denmark Tanzania last year received the majority of the Danish development assistance. The country’s maybe next Minister of Finance, Zitto Kabwe, from the opposition party Chadema (Party for Democracy and Development) welcomes Denmark’s new Minister for Development, Christian Friis Bach’s, approach in regard of allowing developing countries to decide what the total 16 billion DKK, which Denmark annually gives in foreign aid, should be used for.

“It’s a good idea to give developing countries control of donor money. But it must be combined with strengthening both parliament and independent, local organizations” states Zitto Kabwe, designated as “Shadow Finance Minister,” and who may have the important post as Minister of Finance, if the opposition wins the next election.

Weak Parliaments “Today, the parliaments in most African countries are very weak. Therefore it is also essential, along with a conversion to general budget support to reinforce the local parliaments and organizations so they can keep governments accountable in regard of how money is spend. Otherwise, a portion of the money will be wasted.”

Zitto Kabwe suggests that using a fifth of support from the rich countries to strengthen parliaments and local NGOs, while the developíng countries’ own governments will be responsible themselves for distributing the remaining 80 per cent.

“We have to assure that Danish tax payers’ money is not wasted. In this way one can guarantee that there will greater transparency and control of money – while we get a greater accountability – because if the government is allowed to distribute money itself it will thus feel a much greater sense of ownership for the entire development,” says the Tanzanian politician.

The money disappears According to Zitto Kabwe about 30 percent of public donor funds disappear in Tanzania and are not accounted for. And in a country, which annually receives 8 -10 billions DKK in foreign aid from different countries, it really is a lot of money.

“By giving ourselves the responsibility the waste will be much smaller, and we will get more out of money,” he assesses.

Zitto Kabwe also believes in the idea of a greater level to support local citizens’ rights which Christian Friis Bach also announced – it corresponds well with giving a higher degree of responsibility for foreign aid to developing countries themselves.

“It’s a good idea to increase the support to local people and independent organizations. In this way, the poor people have far better opportunities to be heard. But the message must communicated clearly from Denmark, otherwise you risk that the project fails. “

In contrast to the Danish Minister for Development the only 35-year-old Zitto Kabwe does not believe that it necessarily will lead to more demonstrations and provide more turmoil to strengthen local residents and organizations.

Criticism from the Danish Liberal Party Christian Friis Bach’s announcements have created a fierce debate. In parliament, the Danish Liberal Party called the Minister for Development in consultation the representative Jakob Ellemann Jensen (The Liberal Party) informs:

“On the one hand, the Minister expresses the wish that he will increase block grants to developing countries and then leave it up to the countries themselves to decide what the money is for. On the other hand, he says he will be a “minister for rights” and promote civil rights. Thus it may not be such a good idea to give money to governments’’, says Jacob Ellemann- Jensen.

“In the Danish Liberal Party we would also like to give developing countries greater participation in order to avoid paternalism. But I find it difficult seeing how the announcement from Christian Friis Bach works.